CityFibre lights the fuse on altnet consolidation with Lit Fibre deal

The Openreach rival has struck an all-share agreement to acquire smaller provider Lit Fibre, a deal that promises to grow its fibre footprint by up to 300,000 premises, comprised of 200,000 homes passed and another 100,000 planned.

The deal follows CityFibre's earlier acquisitions of FibreNation, Entanet, as well as KCOM and Redcentric's national networks. It says this latest purchase is an important step on its journey towards rolling out fibre to 8 million premises, and becoming the country's third infrastructure platform, alongside Virgin Media O2 (VMO2) and the aforementioned incumbent.

"The UK market needs a third infrastructure platform of scale to ensure competition matures and that it continues to deliver for consumers and the country," said CityFibre CEO Greg Mesch. Our acquisition of Lit is a clear demonstration of our intent to establish CityFibre as the core of that third platform."

Based in Reading, Lit Fibre has rolled out nearly two dozen FTTP networks in various parts of England. Looking at its coverage map, it's hard to identify a pattern to its deployment, but most of its infrastructure seems to have been built in areas between Bristol and Birmingham, with several more in Hertfordshire and a smattering in East Anglia.

Lit's network uses XGS-PON technology, which supports speeds of up to 10 Gbps, making for a good technological fit with CityFibre, which has been busy upgrading its own FTTP networks with XGS-PON.

"We are delighted that CityFibre has decided to acquire Lit Fibre, the first in their new targeted acquisition strategy," said a joint statement from co-founders Tom Williams and Ben Bresler. "Just over three years ago we established Lit to bring Internet connections of the highest quality to towns across the UK. Along with our team we've been successful in building an enviable reputation for quality and customer service that our customers rate highly."

Lit is owned by New York-based investment firm Newlight Partners.

The all-share nature of the acquisition means Newlight will become minority shareholders in CityFibre. Sources cited in an earlier report by Sky News claim that the equity firm's stake equates to roughly 2 percent, which based on CityFibre's valuation of £4 billion, values Lit Fibre at around £80 million.

"We are incredibly proud of Lit Fibre's success in bringing world-class fibre broadband to towns across the UK," said Newlight Partners partner Joshua Ho-Walker. "This acquisition is an exciting milestone, and we look forward to becoming a shareholder in CityFibre and continuing to help build the UK's leading full fibre wholesale platform."

The UK is awash with alternative fibre builders racing to wire up every feasible square inch of the country. While that's beneficial in terms of getting fibre to as many premises as possible, it raises questions about whether the market can support so many small providers, especially now that some areas are served by multiple networks, and with inflation driving up costs.

CityFibre has been a vocal proponent of consolidation to achieve the scale needed to stick it out for the long term.

It's not the only one. VMO2 and its wholesale partner Nexfibre got in on the act in September, agreeing to acquire altnet Upp.

Given the current state of the UK fibre market, it's more than likely a case of 'when' not 'if' another deal is done.